Chargeback prevention is the set of strategies merchants use to reduce fraudulent transactions and customer disputes that lead to forced transaction reversals.
Chargebacks were originally introduced to reassure customers when making card payments. But they have since become time-consuming and costly for businesses to deal with.
In the past, UK consumers have been less likely to request chargebacks than their US counterparts. However, chargebacks are on the rise in the UK. 77% of consumers surveyed in 2023 had filed a chargeback in the last year, up 32% compared with 2022. Currently, the UK’s chargeback rate is 0.52%, meaning approximately 1 in every 200 payments will result in a chargeback.
Fortunately, there are ways to reduce your chances of receiving chargebacks and minimise the time, effort, and cost of handling the chargebacks your business does receive.
Read on for more details, including seven useful ways to safeguard against chargebacks.
What are chargebacks?
A chargeback reverses a debit or credit card payment. Unlike normal refunds, where the customer is the party requesting a refund, in the case of a chargeback, the customer's bank requests and receives the refund on the customer's behalf
Chargebacks were designed to protect debit and credit card users, allowing them to easily get their money back if something was never delivered, if they weren’t refunded promptly, or if unexpected charges were added to the transaction.
They were intended to encourage consumers to use cards when card payments were a new payment method and to incentivize card acquirers to onboard reputable merchants.
When can a customer request a chargeback?
There are several reasons why customers request a chargeback, including:
card processing errors, such as being charged multiple times for the same purchase
the cardholder doesn’t recognise the transaction
merchandise or service differs from the description
received goods are defective
ordered goods aren’t received
agreed upon services did not take place
the seller has gone out of business, and so the customer cannot request a refund
For example, a customer might receive faulty goods from a merchant. If they cannot get a prompt refund from that merchant, they can raise a chargeback dispute with their bank or card issuer, who can reverse the charge at the merchant’s expense.
Unfortunately, consumers often request a chargeback when they shouldn’t. For instance, some ask their bank to reverse a charge rather than going through the merchant's refund process.
There’s also the possibility that some chargebacks aren’t made in good faith, where a customer has no legitimate reason for a chargeback but requests one anyway. This is often known as friendly fraud.
How does a customer request a chargeback?
How does the chargeback process work?
The chargeback process involves multiple steps:
Step 1: A customer experiences a problem with their order or sees an unknown transaction on their card statement and files a chargeback. They get in touch with their bank to dispute the transaction, stating one of the reasons mentioned above.
Step 2: The issuing bank vets the complaint. With an initial investigation, the issuing bank determines if the dispute is valid. If so, they notify the merchant’s bank.
Step 3: The customer receives a conditional refund. The money is withdrawn from the merchant’s bank and transferred back to the customer’s account. A chargeback reason code is given.
Step 4: The merchant bank launches an investigation based on the reason code and accompanying data. This step can involve multiple, lengthy steps depending on how complex the dispute is. At this stage, the merchant’s bank will notify the retailer and ask for evidence. It’s your job, as the merchant, to provide all required evidence, such as receipts, delivery confirmation, and customer service records.
Step 5: The customer’s bank determines the final outcome. With evidence in hand, the issuer’s bank will determine whether the chargeback is justified. If so, the merchant must pay the claim value plus associated fees.
If a merchant ignores a dispute or request for evidence, the funds are automatically returned to the customer’s account, and the merchant is charged all fees.
Typically, the bank or card issuer will side with the customer. The merchant must pay the original transaction cost as a refund and a chargeback fee typically ranging from £10 to £20.
To put those fees into perspective, MasterCard estimates that global chargeback volume will reach $337 million (around £266 million) by 2026, a 42% increase from 2023. Chargebacks have become such a problem for businesses, and payment processors have begun offering chargeback protection and insurance.
Aside from the financial hit, repeat chargebacks can damage a brand’s reputation. Businesses can dispute chargebacks, but this process can take up to 120 days to resolve, leading to loss of revenue while the matter is investigated.
A high volume of disputes, legitimate or not, could even lead the bank to shut down your merchant account or cause card acquirers to cancel contracts. This is why it’s so important to prevent chargebacks before they occur.
7 ways to reduce chargebacks
As chargebacks are a consumer protection mechanism built into card payments, it may be impossible for your business to eliminate them entirely without changing the way you allow your customers to pay. However, there are ways to reduce the number of chargebacks you receive. Here are the top chargeback prevention strategies.
1. Make it easy to submit refund requests and address them quickly
Chargeback management starts with customer service. Before a customer turns to the bank to file a chargeback, they’ll often try to contact a business directly. Make contact information readily available, even if it’s just an email address.
One of the main reasons customers try to get their money back directly from their bank rather than from the merchant is the speed of resolution. So, deal with issues, including refund requests, promptly to resolve disputes before they turn into chargebacks.
It’s also worth Clearly displaying your returns and exchange policies and including a step-by-step guide on how to request a refund. Encourage customers to contact you directly for refunds and make the process easy to follow.
2. Respond promptly to chargeback requests
During the chargeback investigative stage, you can respond if you think the chargeback is not legitimate. Nearly a third of merchants don’t contest chargebacks that they think are illegitimate.
Visa gives merchants 20 days to submit representment to fight a chargeback while MasterCard allows merchants 45 days to respond to each part of the process. To have a chance of winning, include relevant supporting information, including proof of authorization, signed receipts, and proof of delivery, all of which will support your case that the chargeback should not be upheld.
3. Make your product descriptions, shipping process and returns policy crystal clear
Chargebacks often occur when customers are confused or face delays in receiving products or refunds. Many cardholders view filing a chargeback as a valid alternative to seeking a refund directly from the merchant. Communicate clearly and comprehensively to prevent confusion and complaints.
If your business is selling physical goods, make sure your website contains up-to-date, high-quality photos and detailed product descriptions. This helps set the right expectations and reduces the likelihood of confusion or dissatisfaction. Immediately update your website to reflect stock availability, disabling the purchase option for items that are out of stock.
To help manage timeline expectations, all shipping details, including delivery timelines and costs, should be clearly displayed at checkout. Keep customers up-to-date about the status of their delivery and allow them to track their delivery in real time.
4. Check your billing descriptors
A third of consumers report that they often find statement billing descriptors confusing or unrecognisable. If customers don’t recognize a charge on their bank statement, they will likely contact their bank to reverse it. Check and update your billing descriptors so they contain your brand name as it appears on your website and are easily recognizable for customers.
5. Send confirmation emails for each purchase
Give your customers advance notification of billing details before they appear on the bank statement by sending an automatic confirmation email for each purchase. Include your contact information on the invoice, giving the customer a chance to get in touch with queries. This also creates a paper trail for any potential chargeback investigations.
6. Make your payments secure
Customers have the right to request a chargeback if a fraudulent purchase was made on their card. Customers may also request chargebacks if they claim the transaction was fraudulent — even if it wasn’t.
Requiring customers to authenticate transactions on your site, for example, with 3D secure, helps reduce the chance of fraud because fraudsters need to access more information than just card details to make a payment. Additionally, secure payment measures make it more difficult for consumers to wrongly claim a transaction was fraudulent because there’s evidence they authorised the transaction.
7. Consider pay by bank as a checkout option
Offer additional options at checkout, like pay by bank — powered by open banking — to prevent the risk of chargebacks. Pay by bank is an instant, cost-effective, and secure way to pay online. Funds get transferred directly from one bank account to another without the need for cards. This means chargebacks aren’t a part of the purchase journey. Customers still benefit from relevant consumer rights and protections to make sure their purchases are safe and secure.
The best way to prevent common types of chargeback
Consumers can give different reasons when they request a chargeback from their bank. The bank will assign a ‘reason code’ to define the type of dispute. You may find you often receive chargebacks for the same reason. Here’s a quick reference list of ways to remedy common chargeback types.
Fraudulent charge
Why it happens: A customer did not authorise the payment, possibly due to the use of stolen card details, or a customer incorrectly thinks they did not authorise a payment.
How to solve it:
Require strong customer authentication (SCA) for payments to verify the cardholder’s identity
Update your billing descriptors to make them clearer, ensuring they are easily recognizable on bank statements
Send confirmation emails for every transaction detailing the purchase and provide a point of contact for any issues
Gather proof of customer participation in transactions, such as order history or signed receipts
Unrecognised charge
Why it happens: A customer does not recognise a charge on their bank statement, possibly due to unclear billing descriptors.
How to solve it:
Regularly review and update your billing descriptors to ensure they clearly reflect your business name and the nature of the charge
Send detailed confirmation emails that include how and when the customer will be charged and the service or product details to help them recall the transaction
Cancelled subscription charge
Why it happens: A customer was charged for a subscription that they had already cancelled. They may have expected not to be charged following the cancellation.
How to solve it:
Implement and clearly communicate a cancellation policy that includes a notice period before a subscription ends
Immediately confirm cancellation via email and inform the customer of any final charges or prorated refunds
Ensure your billing system updates promptly to prevent charges after cancellation
Product not received
Why it happens: The customer did not receive the product they ordered within the expected time frame.
How to solve it:
Be transparent about delivery times and give customers tracking information to monitor the delivery
Consider billing the customer only after the product has been shipped or nearer delivery to reduce disputes
Communicate proactively with customers about any delays in shipping
Product unacceptable
Why it happens: The product received by the customer either doesn’t match its description online or is in poor condition.
How to solve it:
Make sure your product descriptions and photos are detailed and accurately represent the product
Use high-quality images and provide specifications to match the actual product quality and function
Address customer complaints swiftly and offer replacements or refunds where necessary
Credit not processed
Why it happens: A customer returned an item or cancelled an order and has not yet received a refund.
How to solve it:
Process refunds promptly upon receipt of returned goods or cancellation notice
Outline your refund policy, including timelines and conditions for returns and cancellations
Send immediate confirmation of the return or cancellation receipt and details of when the refund was or will be processed
Move beyond card purchases and chargebacks with pay by bank
The above advice can help protect your business from unwanted chargebacks and processing fees.
Open banking payments — or pay by bank as it is often called at checkout — are also a great way to eliminate chargebacks altogether by avoiding credit card processing entirely. Our Payments API is tailor-made for ecommerce businesses, enabling shoppers to pay instantly with a few clicks. As there’s no card network involved, there is no chargeback process to deal with.
Consumer benefits increase when issues arise because only three parties are involved in the resolution: the customer, the merchant, and the open banking payment provider. Each party has a direct relationship with the others, simplifying the process.
With pay by bank, powered by a secure open banking platform like TrueLayer, customers and businesses enjoy instant, secure transactions. Learn more about open banking payments for ecommerce.
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